The Treasury Inspector General for Tax Administration (TIGTA) has issued a report revealing that fraudsters attempted to file 4,828 fraudulent tax returns in an effort to steal $462 million in refunds between August 12, 2023, and April 16, 2024. Despite the IRS stopping 4,254 of these claims, fraudsters were able to file 574 improper returns claiming over $47 million. The fraudsters were able to access taxpayer information through the Practitioner Priority Service (PPS), a hotline established for tax professionals.
Tax professionals often need to interact with the IRS on behalf of taxpayers, requiring a different level of service than individual taxpayers. The PPS hotline is staffed with assistors trained to handle more complex requests for information from tax professionals. To prove authorization to discuss a specific taxpayer’s information, tax professionals must typically submit a Form 2848, a Power of Attorney and Declaration of Representative, among other identifying information like a Centralized Authorization File (CAF) number and a Preparer Tax Identification Number (PTIN).
Fraudsters exploited compromised CAF numbers to access taxpayer information and filed fraudulent tax returns, attempting to claim around $66 million in refunds. While approximately 85% of these claims were blocked, about $10 million in refunds were processed and sent to fraudsters. The IRS responded by promoting the Tax Professional Online Account (Tax Pro Account) to allow verified tax professionals to securely access taxpayer information online, but the security protocols needed strengthening to prevent further fraud.
Despite the IRS implementing additional protections and guidance for the PPS assistors in September 2023, TIGTA found that these measures were not implemented quickly enough. The IRS was slow to act on the fraud, with TIGTA alerting the agency in February 2024 to request immediate action. It wasn’t until April 2024 that the IRS finally moved to require additional authentication controls to address the issue of fraudulent refunds.
As of April 8, 2024, the IRS has trained all PPS employees to use increased protocols to prevent theft and has agreed with three out of four recommendations made by TIGTA to address the issue. While the IRS agreed to shut down 17 potentially compromised tax professional mailboxes, it found no evidence of fraud and opted not to shut them down. The IRS acknowledges the need to find a balance between preventing fraud and providing tax professionals with immediate access to taxpayer accounts to assist them.
Moving forward, the IRS says it will continue to monitor its systems and take corrective action as needed to prevent fraudulent activities. The agency remains committed to ensuring the security of taxpayer information and preventing fraudsters from exploiting vulnerabilities in the system to steal refunds unlawfully. Taxpayers and tax professionals are encouraged to remain vigilant and report any suspicious activity to the IRS to protect against fraud.
